Conclusion

The object of the ECT rules is to ensure that the amount of concessionally taxed super benefits that a person receives results from super contributions that have been made gradually over the course of the person's life.

To ensure super tax concessions are targeted appropriately, limits have been placed on the amount of super contributions a person can make that receive concessional treatment.

Concessional contributions are, generally, contributions for which the contributor is allowed a tax deduction and are included in the assessable income of a super fund. The concessional contributions cap does not limit the amount of these contributions but imposes an additional tax on the excess concessional contributions for an income year above the cap.

In recognition of the fact that older working Australians are financially able, and willing, to contribute more to their super, transitional concessional contributions cap were introduced.

Table 7: Concessional contributions caps

Income year

Member under 50 years old

Member 50 years old or older - transitional cap

2013-14

$25,000

$25,000

2012-13

$25,000

$25,000

2011-12

$25,000

$50,000

2010-11

$25,000

$50,000

2009-10

$25,000

$50,000

2008-09

$50,000

$100,000

2007-08

$50,000

$100,000

Non-concessional contributions are not subject to the 15% tax payable by the fund on assessable contributions and are most commonly known as after-tax contributions. The non-concessional contributions cap is $150,000.

People under 65 years old may be able to make non-concessional contributions of up to three times their non-concessional contributions cap over a three year period. This is known as the bring-forward option.

Section 292-95 provides an exclusion from the non-concessional contributions cap for certain super contributions made from personal injury payments.

In certain situations, under the CGT cap, amounts arising from the disposal of qualifying small business assets that are contributed to super can be excluded from the non-concessional contributions cap under section 292-100.

Transfers from overseas super funds may be comprised of different components. There are specific rules about the tax treatment of each component, which is determined under Subdivision 305-B.

Contributions in excess of the relevant caps are subject to tax. This tax is imposed on the person. If an ECT liability arises, the person will be able to, and in some cases must, withdraw an amount equal to their tax liability from their super fund. The Commissioner will make an assessment at the end of each income year, once all of the relevant information has been received.

Concessional contributions in excess of a person's cap are taxed at an additional 31.5%. This tax is imposed on the person, who may withdraw from their super fund an amount up to the amount of their tax liability. The 31.5% tax is in addition to the 15% tax paid on all contributions included in a super fund's assessable income.

Non-concessional contributions in excess of a person's cap are subject to tax at the rate of 46.5%. Non-concessional contributions are not included in the assessable income of the fund and thus not subject to the 15% contributions tax.

Before an ECT assessment is issued, the ATO will write to the person so that they have the opportunity to provide any additional, relevant information. Once the assessment has issued, a person has two main avenues to seek corrections to any perceived errors. They may lodge an objection or request an amendment.

The Commissioner can make a written determination to exercise discretion and allocate all or part of a person's concessional and non-concessional contribution to a different income year or disregard all or part of a contribution for the purposes of ECT under subsection 292-465(1).

Discretion can only be exercised if the ATO recognises:

there are special circumstances

making the determination will be consistent with the object of the ECT rules.

Special circumstances are legally defined as unusual, exceptional, abnormal or uncommon where applying the law would result in an unjust, unfair or otherwise inappropriate outcome.

If the we decide to disregard an amount, it will not be counted towards the relevant contributions cap for any income year. If an amount is allocated to another income year, the amount will be counted towards the relevant contributions cap for the income year to which it is reallocated.

If an ECT liability arises, a person will be able to, and in some cases must, withdraw an amount equal to their ECT liability from their super funds (other than a defined benefit interest).

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